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Singapore – Application Of Lemon Law To Second-Hand Vehicles.

4 June, 2014

 

Legal News & Analysis – Asia Pacific – Singapore –  Dispute Resolution

 

Introduction

 
The new “lemon law” provisions in the Consumer Protection (Fair Trading) Act (“CPFTA”) allow consumers to make claims for repair, replacement or refund where they have purchased a defective product. Since the enactment of the lemon law, businesses have had to assess how these rules apply in the specific context of their industry and products. In Speedo Motoring Pte Ltd v Ong Gek Sing [2014] SGHC 71, the Singapore High Court considered the lemon law in the context of the sale of second-hand motor vehicles.

 
The case involved a second-hand hybrid vehicle, in which the hybrid battery had to be replaced about three months after delivery. The buyer sought to reclaim the cost of repair, and succeeded before both the Small Claims Tribunal and, subsequently, the High Court.

 
The High Court laid out the general principles regarding the applicability of the lemon law, and the burden of proof behind its provisions. The Court also examined how these factors apply in the context of second-hand vehicles, and suggested practical measures which could be taken by sellers before the sale of such vehicles to prevent disputes over defects.

 
As a relatively new legal regime, the lemon law still faces certain questions regarding when and how it will apply. This judgment serves as a guide as to the workings of the lemon law, and may prove helpful not just to retailers of second-hand vehicles, but vendors in general.

 
Brief Facts

 
The Plaintiff purchased a second-hand Lexus (the “Vehicle”) from the Defendant. The Vehicle was then three years old and had a mileage of 53,842 km. The purchase price was SGD 138k, discounted from SGD 139,800 as the Plaintiff had purchased it without warranty.

 
Before handing over the Vehicle, the Defendant had sent the Vehicle for an STA evaluation test. Unfortunately, the test did not cover the Vehicle’s hybrid battery, which stopped working and had to be replaced less than three months after delivery. Further, the Defendant also found that the Vehicle’s tyres and front disc brakes were worn out, and had to be replaced as well.

 
The Plaintiff brought his claim before the Small Claims Tribunal, where the Referee found that the Vehicle “was not a car in good condition”, and that it had not been regularly sent for servicing. The Referee allowed the Plaintiff’s claim for the cost of replacing the hybrid battery, but not the tyres and brake discs, as they were items subject to wear and tear.

 
The Defendant, dissatisfied with the award, brought the matter before the High Court. 

 

Issues

 
The High Court had to consider a number of issues, including:

 
(i) Whether the CPFTA was excluded from application as the Plaintiff had turned down the extended warranty offered by the Defendant, and

 
(ii) Whether the Part III of the CPFTA (the lemon law) applied.

 
Holding Of The High Court

 
The Court upheld the findings out the Referee, and dismissed the Defendant’s appeal.

 
Warranty

 
The Court noted that at the Small Claims Tribunal, the Defendant had placed great emphasis on the fact that the Plaintiff had “opted-out” of the extended warranty offered by the Defendant. The Defendant abandoned this argument in the present appeal. However, the Court observed that even though the Defendant did not have an extended warranty, he could still avail himself of the remedies under the lemon law. The Court reasoned that the consumer’s rights under the CPFTA cannot be contracted out of or waived. Further, it was observed that the remedies provided in the CPFTA exist over and above any rights in general law.

 
The purpose of the CPFTA is to provide a protective framework for consumers in light of their weaker bargaining position. As such, it is unlikely to be excluded by terms that the product is sold “without warranty” or “as is”.

 
Lemon Law – General Principles

 
In order for the lemon law to be applicable, s12B(1) requires, inter alia, that the goods do not conform to the contract of sale and purchase at the time of delivery. S12A(4) further provides that goods are deemed not to conform to the contract if they breach an express term of the contract or an implied term in s12-14 of the Sale of Goods Act (“SGA”).

 
Non-conformity must be present at the time of delivery, and the burden of showing this lies on the consumer. However, the CPFTA sets out a number of evidential presumptions relating to this burden.

 

(i) Even where defects are not obvious right from the outset, s12B(3) provides that defects discovered within six months from delivery will be taken as having been present when the goods were delivered.

 
(ii) S12B(4) then provides that the seller can defeat this presumption by showing that the goods did conform at the date of delivery, or that the presumption in s12B(3) is incompatible with the nature of the goods, or with the nature of the lack of conformity.

 
The seller can thus overcome s12B(3) by producing evidence that the goods were in conformity when delivered, or that some other causal factor has resulted in the defect. Alternatively, the seller can show that s12B(3) is incompatible with the nature of the goods, such as where the goods are perishable and would not last six months, or with the nature of the lack of conformity, such as where the defect would in any event arise from normal wear and tear, or could only arise from user error.

 
Lemon Law – Second-Hand Vehicles

 
To assess whether the Vehicle conformed to the contract of sale, the Court considered whether it had breached s14 of the SGA, which provides for implied terms regarding the product, including the requirement that it be of satisfactory quality. In doing so, the Court would have to consider all relevant facts as the inquiry is extremely fact dependent.

 
The Court also listed a non-exhaustive list of factors it would ordinarily consider to determine whether goods were of satisfactory quality, including:

 
(i) Fitness for purpose;

 
(ii) Appearance and finish;

 
(iii) Freedom from minor defects;

 
(iv) Safety; and

 
(v) Durability.

 
The Court emphasised that it would be easier to conclude that a vehicle is not of satisfactory quality if the defective part was an integral part of the vehicle (i.e. engine or the gear box). Conversely, it would not be easy to find that the vehicle is not of satisfactory quality if the defect lies in minor components that are relatively easy to replace (i.e. windshield wipers or cabin light).

 
However, the Court highlighted that certain factors may not be appropriate in the context of secondhand goods. A second-hand vehicle would clearly warrant a lesser standard than a new vehicle in terms of appearance, defects, and durability. A certain degree of wear and tear is to be expected, and the vehicle would not be free of minor defects, while the durability would depend on its age and mileage. The Court would thus have to take into account the vehicle’s age and the price paid in comparison to the price of a new vehicle.

 
Nonetheless, the Court rejected the Defendant’s submission that a second-hand vehicle is reasonably fit for its purpose as long as it is in a roadworthy condition and fit to be driven along the road in safety. It held that this could not be a general proposition for all second-hand cars as each case would depend on its facts, and a relatively new second-hand car sold at an equivalent price could not be reasonably held to such a low standard.

 
Application

 
On an analysis of the facts, it was found that Vehicle was not of serviceable quality at the time of delivery.

 
The defective hybrid battery was held to be an integral component of the Vehicle, as it constituted a key feature of any hybrid vehicle. The main impetus for purchasing a hybrid vehicle would be for the advantages of its hybrid system, such as better fuel economy. To that end, the hybrid battery plays a crucial role in allowing the vehicle to fulfil its intended purpose.

 
The Court also took into account the fact that the Vehicle was relatively new, and that there was no sign of any major defect before its sale.

 
However, the Court also held that the Defendant would not be liable for the worn-out tyres or faulty brake discs on account of the Vehicle being second-hand. These defects were relatively minor, and likely the result of the expected wear and tear.

 
Concluding Words

 
The Court also provided some guidance on how sellers of second-hand vehicles could avoid being held liable under the lemon law. First, sellers could allow the vehicle to be evaluated by an independent third party to assess potential defects. A record of functionality would also aid the seller in raising s12B(4) of the CPFTA to defeat the presumption of defectiveness at time of delivery should a defect be found within six months.

 
Second, sellers should document and highlight to the buyer any potential defects that are already present, as well as allow the buyer to physically examine the vehicle. This would avoid further disputes down the road, as well as reveal any cosmetic defects.

 
Sellers of second-hand vehicles should thus be aware of the standard to which a second-hand vehicle will be held under the lemon law. While the vehicle is not expected to be at the standard of a new car, much depends on the facts of the case, including the age, mileage, and price of the vehicle. The lemon law seeks to protect the buyer, but sellers can also protect themselves by conducting and documenting thorough pre-sale inspections to ensure and prove that the vital components are not defective. A prudent seller should thus be guided by the principles and practical advice raised by the High Court in this judgment.

 

Rajah & Tann

 

For further information, please contact:

 

Beng Chye Chua, Partner, Rajah & Tann

beng.chye.chua@rajahtann.com

 

Chester Toh, Partner, Rajah & Tann

chester.toh@rajahtann.com

 

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